Kadin’s deputy chairman for monetary, fiscal and public policy, Raden Pardede, said that the country’s massive infrastructure projects use a large amount of the money in the banking system instead of raising funds by issuing bonds, as has usually been done in the past.

"The sources of funding for infrastructure projects should normally come from the capital market, not banks," he stated during a forum on bank liquidity challenges in Jakarta on Monday.

Raden explained that the funding for infrastructure projects should ideally come from the capital market, such as through debt papers or bonds issuance as those instruments provide long-term maturity.

However, due to the country's shallow financial market, construction firms instead turned to banks to seek financing for their projects, which then created a maturity mismatch as a larger part of the banks’ money came from short-term funds such as savings and deposits.

The maturity mismatch caused the banks’ liquidity to tighten and limited their ability to disburse fresh loans to customers.

Deposit Insurance Corporation (LPS) executive director Fauzi Ichsan agreed that infrastructure financing had caused some banks, especially midsized ones of the BUKU III category with core capital of between Rp 5 trillion (US$357.14 million) and Rp 30 trillion, to be in a tight squeeze, but he also argued that most infrastructure projects were financed by foreign loans.

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